Reckoning

by David Halberstam

  Many of the finance people truly hated him. In the Ford company there were all sorts of unwritten rules about the acceptable level of confrontation at meetings, and Sperlich alone never seemed to play by the rules. Under normal circumstances he might have perished in the company much earlier, but his connection to Iacocca made him untouchable. To some of the financial people his abrasiveness was the true symbol of Iacocca’s arrogance. Thus Iacocca’s attempt to place Sperlich in the top job in Europe was a fascinating political gambit. It was not just an attempt to insert his own man in this rival kingdom; it was also an attempt to keep Henry Ford and finance from having their man there.

  Henry Ford quickly shot the nomination down. He was already nervous about Iacocca’s power within the company, and he did not like Sperlich. Henry Ford had felt Sperlich’s disrespect in the past (and disrespect it was, for Sperlich disliked a man who, in his view, cared so little about making cars), and he was in no mood to give him the European crown. It was, he suspected, a frontal challenge disguised as a routine matter. Instead he appointed Phil Caldwell as chairman of Europe and Bill Bourke as president. Both were potential rivals of Iacocca (who saw Bourke as a threat and scorned Caldwell). This was the first open move in the grim chess game that now began between the two men. It revealed the limits that Henry Ford intended to impose upon Lee Iacocca: He could continue to do what he was doing, and that would be all.

  Iacocca no longer saw Ford as the man who had advanced Lee Iacocca’s career; he had become the man who stood in Lee Iacocca’s way. Because Iacocca was so much the embodiment of the self-made man, it was difficult for him to appreciate anyone who was not, even someone who, though he might have had greater advantages, had equally exhausting responsibilities. Iacocca spoke to close friends now about spoiled Wasp bastards and about little prick princes born to the cloth who had never opened a fucking door for themselves in their entire lives. Within the company, even among his closest friends, Iacocca was still relatively discreet. Few members of his inner group realized the degree to which a breach had opened. He spoke openly, however, with a man named Alejandro DeTomaso, an auto executive of Argentinian and Italian origins who, operating out of Rome, had put together several small European automobile companies in Europe, which Ford had subsequently bought. Henry Ford had then turned against DeTomaso and had forced Iacocca to sever Ford’s relations with him. Iacocca had done that, but the incident had strengthened his own personal relationship with DeTomaso, bonded as they were by their feelings about Henry Ford. When Iacocca was with DeTomaso and a few associates in Rome, he seemed to be freer of the restraints of Detroit, and he was more rancorous about Henry Ford. Ford didn’t know a goddam thing about the business or what he was doing, he said. The problem now was in minimizing the damage he did to the company. He was dumb, goddam dumb. The problem with the auto industry, Iacocca complained, was the dumb third-generation people like Henry Ford, family representatives trying to run their companies long after the brains had been bred out of them. Then he would complain about the minor humiliations visited upon him—he had to check in to use the airplane, like a goddam schoolboy needing a pass to go to the bathroom.

  Nor was this all idle talk. Iacocca and DeTomaso were talking about Iacocca’s leaving Ford and setting up a rival company. At first they spoke of combining several small European companies and connecting that unit to American Motors as the flagship company with Iacocca in charge. The result would be a huge international company with an expandable American base. Iacocca was interested, but he did not think American Motors was an adequate foundation. He suggested they go after Chrysler instead, and for a time they seriously considered it. Chrysler was strong enough in its essential resources—its plants and its dealer system—to be attractive, and at the same time sufficiently mismanaged to be available. They did some sniffing around, and for a time they spoke about making a run on the Chrysler stock. Then in 1973 Chrysler started coming back, its stock went up, and the plan fell through. But the idea had been seriously entertained, which showed how restless and alienated Iacocca had become.

  The Ford company, as the critical decade of the seventies began, was a divided company, much of its energy wasted in power struggles. It was also a sterile company living smugly off its past. The people running Ford were saying in effect that they were so good and their own customers so satisfied and docile that they had only to meet their own existing levels. It was a static world, premised on standard volume. Ford’s customers would stay faithful because they had always stayed faithful.

  As Henry Ford became more conservative, Ed Lundy inevitably became even more powerful. He was the beneficiary of the age they lived in. The company was no longer young, it was middle-aged, and as it grew older its bureaucracy grew far faster than its creative parts. Besides, this was becoming a more difficult time in which to make money. The Vietnam War had produced a sharp increase in inflation, and as the cost of doing business rose, the price of a mistake also rose; therefore it became easier to continue to do what you were doing and innovate as little as possible. When an expensive new line of cars was proposed, Ed Lundy could talk about Wall Street’s reaction or about what this might do to the bank rating—the danger that Ford might lose its triple-A rating with the banks. Those were magic words, and they stopped all discussion. Anything that made the Street nervous or threatened a bank rating could not be tolerated. The stock was particularly important in a company like Ford, where so much of the stock was family-owned. In other companies there were a variety of ways to measure success, but at Ford the stock was the very index of the family’s wealth; if it was up, the family was richer, and if it was down, the family was poorer. In addition to the normal pressures for stock performance, an enormous new one appeared in the early seventies when the Ford Foundation began to diversify and to sell its Ford Motor Company stock. It was all done deftly, $1.37 billion in shares, unloaded with great skill so that the stock would not be depressed. In 1971, Ford shares worth $349 million were sold; in 1972, $466 million; in 1973, $275 million; and finally, in 1974, the last $282 million, emptying the foundation’s portfolio of Ford stock. It was not a subject much talked about while it was happening, but it was something that everyone in the company was aware of; it hung over other deliberations, a reminder that this was not a time for Ford to be reckless and make mistakes. Iacocca had his clique, and they were talented and loyal, but Lundy had something more powerful and cohesive—he had a genuine cadre. He had control of the personnel system, and over two decades he had placed his people in many key positions. His people were very good, and they knew the company as no one else did anymore. They were brilliant at getting the reports from the other departments, culling through them, and giving Lundy extraordinarily complete rundowns, so that when he went to meetings, he and his top deputies could always ask seemingly spontaneous questions that cut right to the core of any issue. The great sin for an aspiring finance man was to permit his boss to look unprepared at a critical meeting. Those who served him well were well rewarded. Lundy was a very tough taskmaster, but he was also extremely loyal to his own people. If a Lundy man made a mistake, even a serious mistake, he would be protected, it was believed, if the mistake reflected loyalty to finance. Lundy might switch the man to another area or recycle him in some way, but there would be a second chance.

  What these cool young men were good at was the game of the company, for they were gifted gamesmen. They knew first and foremost how to keep their superiors happy. They understood the bottom line, and they understood how to find the weakness in any new proposal. They did not really know cars, but they knew the language of the company, and they were all quick studies. They were particularly skillful at putting the product men on the defensive. They were, said one product man years later, great counterpunchers. They never had to suggest or create, only to show the faults in others. They never stood for anything. They had no record.

  Even within the world of finance they were unusually conventional and fearful of taking risk. Outsid
ers looking at the approaching dilemma of the Ford Motor Company, its rising labor cost, its incipient Asian competition, were puzzled that the company did not diversify more, hedging its bets and making itself less dependent on a whimsical, cyclical, and potentially endangered business like auto. Part of that reluctance came from Henry Ford, and part of it came from Ed Lundy. Ford himself was always wary of diversifying. “My grandfather made cars,” he liked to say when the subject came up, “and I make cars.” With Lundy it was a suspicion of worlds he did not know and could not readily quantify. Even the company’s own financial advisers worried that Ford’s investment policies were too cautious. One of the most trusted of these was Sidney Weinberg of Goldman Sachs, the man who had done the public offering. He came to Ford in the sixties with the suggestion that the company buy a very large share, perhaps as much as 49 percent, in an impressive but underfinanced Japanese company named Honda, which then made motorcycles. Honda, the outsider in the old-boy network of Japanese manufacturing, was always having trouble getting adequate financing. The idea of a connection to Ford appealed to Soichiro Honda, as it did to some of the Ford product men, for the originality of Honda’s work was already well known, and Honda considered himself a disciple of the founder. But the finance staff turned it down cold. They wanted nothing to do with a motorcycle maker, least of all a Japanese motorcycle maker. Weinberg, they reported, was crazy; the motorcycle business was a dying one, the machines were unsafe, and it was highly likely that they would soon be banned in the United States. “Well,” Weinberg said a few years later as Honda, without Ford financing, blossomed, “they always have so many facts, those finance people. I don’t know. Maybe they have too many facts.”

  Ford also turned away, in the late sixties, from a chance to buy ABC at a bargain price. Henry Ford had no interest in it; if he was going to buy anything like that, it would be a large newspaper. Lundy wanted no part of it; he wanted to husband the company’s resources, and he was nervous about the world outside, which was filled with secret dangers; opening the company to them might cause a dilution of his control. So on the rare occasion when Ford did buy a property, like Philco, the decision came as much as anything else from the fact that it was for sale very cheap. Philco, of course, became a disaster of the first order.

  Their lack of a record elsewhere, their lack of practical experience, might have brought with it a certain modesty on the part of the finance people. This, however, was not the case. Few of them were afflicted by modesty. To the finance men their work was not abstract or their experience different from that of people who actually made things; in their minds they were the company. What they did was what the company did; they had only to look at their own superiors to see who held power and which values the Ford Motor Company rewarded. What they did not know they did not respect.

  The result was a company living to a considerable degree off its past. But the great days of Detroit, when its success was almost automatic, were nearly over. The world was changing, and the American market was also changing. The men being hobbled by the financial people were the very ones upon whom the future of the company would depend. Ford was not responding, but its leadership was hardly alone. In the late seventies Jim Abegglen, the prominent American consultant in Japan, tried repeatedly to warn American firms of how good the Japanese had become. Eventually, at his suggestion GM executives deigned to meet with him and a few of his fellow Japanologists to talk about the Japanese automotive surge. His group included several men whom Abegglen considered stars—writer-historian Frank Gibney, Harvard sociologist Ezra Vogel, and Columbia sociologist Herbert Passin. GM had laid down the ground rules: Abegglen and his group could not talk about automobiles, since the GM people already knew about autos; instead they should tell the GM executives what Japan was like, the climate and so forth, and what the Japanese were like and why they worked so hard. The GM attitude, Abegglen remembered, was that there are these funny little people out there, and they’re doing pretty well, better than we expected, so tell us a little bit about them. The meeting was all very pleasant; the visitors were picked up at the airport, driven to the GM headquarters, allowed to make their presentations, given a pleasant lunch, thanked very politely, and driven back to the airport. That was that. There was no give and take. The GM people never had to respond to what was being said—and indeed never heard the principal thing that, but for the ground rules, would have been said. Their world was about to crash down on them, Abegglen thought, and they didn’t even know it.

  29. THE ALIENATED

  BY THE EARLY SEVENTIES there were a number of high executives in the auto industry who had detected what they considered to be clear signals that the industry was changing for the worse and about to enter a new and far more difficult era. These men were still a minority, for it was not an industry that lightly bred or promoted pessimists, but it was hard to argue with some of their calculations. They saw foreign competition becoming more serious as the Japanese gradually replaced the West Europeans as challengers to the United States. They saw American costs, especially labor costs, as increasingly burdensome. They were also worried about the new, more alienated generation of American workers.

  Company executives were not the only ones concerned about the workers. Ironically, the UAW’s leadership worried as well, for as the younger workers seemed more estranged from their jobs than were their predecessors, so too they were often more estranged from the UAW leadership. No one in the early seventies was more aware of the change in worker attitudes than Doug Fraser, then a UAW vice-president and, in everyone’s mind, a sure president of the union when Leonard Woodcock, who had succeeded Reuther, reached mandatory retirement in 1974. Fraser was considered the most politically astute of the union’s leaders, and he was well tuned to the growing iconoclasm of the new generation of workers as the powerful social forces then loose in America began to influence blue-collar workers.

  It was part of the new American industrial dilemma: If the golden years were over, the social environment they created was not; there was a dynamic of high expectations that still existed among both managers and workers, and it was extremely difficult at every level of the company to change those expectations after almost thirty-five years of unbroken affluence. It was an industry where both sides, workers and managers alike, had come to expect an ever increasing market and ever higher pay. Coming off that extended cycle was like coming off a narcotic.

  The workers whose memories went back to hard times were by and large, Fraser thought, easier to deal with; the workers who were the children of affluence, the young men who had come into the work force in the sixties, were different. As Fraser watched the change in the younger autoworkers during the seventies—the almost skeptical acceptance of their benefits from the union, their lack of gratitude, their alienation from aspects of American life that he revered—he sometimes thought that it might be a good thing if for a short period they had to lose what they had as union members and live as their predecessors had lived some forty or fifty years earlier. If they could stand in the shoes of a worker from the twenties and the thirties, Fraser speculated, they might value their benefits and their jobs a little more, and it might be healthier for everybody. Too much, he believed, was being taken for granted. What pained him most was not merely that the younger workers had no sense of what the older generation had won for them, but also that they frequently seemed to think that these benefits had been given to them by the company. Just handed out by benign companies.

  Fraser was one of the men who spanned the generations at the UAW. Son of an old-fashioned socialist, he had suffered through the worst of the Depression as a boy, coming to manhood at a time when the union was just being formed. As a top aide to Reuther he watched as the UAW became one of the most powerful and admired institutions in America. He became its head just as the profound economic changes of the late seventies began to undermine both the industry and the union. (In the early eighties, a friend observed that Fraser had spent most of his adult life
as Walter Reuther’s unofficially designated successor, sitting next to the president through all those years of glory and expansion and waiting for his own chance to run the union, only to take over just as the good times were done and the job of the union leader became to minimize losses.

  (“You’re like someone who takes over a great army just as it’s in retreat,” the friend said to Fraser, “and whose task is to carry the wounded off the battlefield.”

  (Fraser pondered the observation for a moment. “That is not a bad description of what happened,” he finally said.)

  His father, the son of a British officer in the Indian army, had been brought to America when he was seven. A socialist and trade-union man, he raised his son in a union home. Young Doug watched his father fired from job after job in Detroit and saw the family evicted from a house because his parents could not pay the rent. He lived as a boy in a neighborhood of Polish and Irish immigrants, where, during the Depression, no one’s father had a job. No one he knew as a boy ever went to college. Food was a problem in those years; the family was always a little hungry but, he decided in retrospect, never very hungry. On the worst days his mother bought stale bread for two cents a loaf (the storekeeper would slice through the wrapping paper so that you couldn’t resell it), and she would soak the stale bread in water and then fry it with sliced onions. That was dinner. Years later, after times became much better, Fraser remembered those bread-and-onion dinners with considerable nostalgia, and once, a successful labor leader, he asked his mother to cook the dish again for him. She complied, and it tasted absolutely rotten. So much for nostalgia. He was fired from his earliest jobs, first at Bryant Motors (where men were made to report every day without knowing if they would actually have work; often they sat around and waited and did not even make their carfare) and then at Everhot Heating, a company that made hot-water heaters. He often reflected that the greatest thing that the union had done for its members was not in the area of wages or pensions but in bringing a basic dignity to the daily lot of the worker. When he thought back to his days at Everhot, he did not think so much of the terrible pay, 33 cents an hour, or even the arbitrary way in which men were fired. He thought of the toilet. It was located in the center of the workplace, and it was made of glass above the waist so that a supervisor standing twenty yards away could tell how long a man had been inside. Fraser hated the glassed toilet. Compared to some of the other abuses in that age it was a small thing, and yet it symbolized to him the inhumanity inflicted on workers, as if they were subhuman. He hated working at Everhot. In 1936 right before the election the boss assembled all the workers and launched into a vitriolic anti-Roosevelt tirade. At the end he asked if there were any questions. No one said anything. A few weeks later, however, when Roosevelt won by a landslide, the workers came in early and papered the entire factory with headlines from the local papers.